Inequality and the European Identity Luxembourg Frank Cowell, LSE. March 2018
Overview 2 Frank Cowell: Luxembourg, March 2018
Agenda • History • what do we know about the subject? • a key European • Economics • what do we know about the facts? • income, wealth • Attitudes • what do we know about European opinion? 3 Frank Cowell: Luxembourg, March 2018
La Courbe de la Répartition de la Richesse 4 Frank Cowell: Luxembourg, March 2018
Pareto: a life • Education and Professional: • 1859 Istituto Tecnico Leardi, Casale Monferrato • 1869 Doctorate, Politecnico di Torino • 1870 Engineer, Italian railways • 1880 Manager, Italian ironworks, San Giovanni Valdarno • 1894 Chair of Political Economy, Université de Lausanne • Personal: • Father: Raffaele Pareto • Mother: Marie Métenier • Born: Paris 1848 • Died: Geneva 1923 • Fritz Wilfried Pareto • Vilfredo Federico Pareto 5 Frank Cowell: Luxembourg, March 2018
La Courbe de la Répartition de la Richesse 6 Frank Cowell: Luxembourg, March 2018
La Courbe de la Répartition de la Richesse 7 Frank Cowell: Luxembourg, March 2018
A European pioneer • Facts • more than a botanist • Model • how to tackle the analysis of inequality • a polymath’s approach • Methods of analysis • Pareto’s work: still prominent in economics • a pioneer in statistical method • Attitudes • all of this matters 8 Frank Cowell: Luxembourg, March 2018
The Pareto coefficient 9 Frank Cowell: Luxembourg, March 2018
Pareto today: wealth in GB 2012-14 Wealth (logs) W 1000 10000 100000 1000000 10000000 0.5 1‒ F ( W ) Proportion above threshold (logs) 0.05 a = 1.844 y = 1E+10x -1.844 y = 7E+11x -2.136 a = 2.108 0.005 10 Frank Cowell: Luxembourg, March 2018
Pareto’s a today Threshold (million euro) ½ 1 2 France 1.75 1.84 1.65 Germany 1.61 1.43 1.43 Italy 1.79 1.85 2 UK 1.5 2.04 2.14 USA 1.02 1.21 1.26 Source: Vermeulen (2014) 11 Frank Cowell: Luxembourg, March 2018
Share of the top 1 percent Threshold (million euro) data ½ 1 2 France 14 12 16 18 Germany 17 25 25 24 Italy 13 12 10 14 UK 22 10 9 13 USA 91 45 39 34 12 Frank Cowell: Luxembourg, March 2018
Inequality: a Botanist’s view • A wider view • the botanist 1 • Lorenz curve • widely used representation 0.8 • a graph of “shares” • important links to economic theory 0.6 • Gini coefficient B • the most widely used inequality index 0.4 • close link to LC A 0.2 0 0 0.2 0.4 0.6 0.8 1 proportion of population 13 Frank Cowell: Luxembourg, March 2018
Wealth, income and inequality 1 1 1 Gini income: 0.384 Gini income: 0.428 Gini income: 0.398 .8 Gini assets: 0.651 .8 Gini assets: 0.725 .8 Gini assets: 0.599 Gini net worth: 0.679 Gini net worth: 0.758 Gini net worth: 0.609 .6 .6 .6 .4 .4 .4 .2 .2 .2 0 0 0 0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1 Gross income Assets Net worth Gross income Assets Net worth Gross income Assets Net worth 1 1 1 Gini income: 0.420 Gini income: 0.440 Gini income: 0.548 .8 Gini assets: 0.614 .8 Gini assets: 0.571 .8 Gini assets: 0.776 Gini net worth: 0.661 Gini net worth: 0.626 Gini net worth: 0.852 .6 .6 .6 .4 .4 .4 .2 .2 .2 0 0 0 0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1 Gross income Assets Net worth Gross income Assets Net worth Gross income Assets Net worth Source: Cowell et al (2017) 14 Frank Cowell: Luxembourg, March 2018
Incomes: the top 10%, a 30-year view 15 Frank Cowell: Luxembourg, March 2018
Wealth: top 10% over a century 16 Frank Cowell: Luxembourg, March 2018
Wealth: top 1% over a century 17 Frank Cowell: Luxembourg, March 2018
France and UK: Transmitted wealth as % national income Source: Atkinson (2018) 18 Frank Cowell: Luxembourg, March 2018
UK and France Transmitted wealth as % personal wealth Source: Atkinson (2018) 19 Frank Cowell: Luxembourg, March 2018
How do people view inequality? • In the last 10 years, have inequalities in your country increased/decreased/stayed same? • Perception of inequalities , http://www.ifop.com/media/poll/1191-2-study_file.pdf 20 Frank Cowell: Luxembourg, March 2018
From perceptions to preferences • Perceptions of facts influence attitudes • willingness to accept inequality • willingness to support redistribution • Preferences for redistribution influenced by • multiculturalism and diversity • political ideology • Preferences are not exogenous or immutable • cultural differences change • political differences change • May be associated with the phenomenon of identity • the basis of recent research 21 Frank Cowell: Luxembourg, March 2018
Identity and social preferences • What is the effect of social identity on preferences? • common reference points • social norms • Development of a European identity • should have important impact • affects solidarity • affects individual experiences within a wider community • How to capture the identity effect? • need a model of identity • (Costa-Font and Cowell 2015b) 22 Frank Cowell: Luxembourg, March 2018
The idea of identity • Social identities shape individuals' preferences • define a “sense of belonging” to a club • the club has norms (a form of externality) • deviation from the norm can be painful • Social identity can act as a social tie • club loyalty and club benefits • can affect support for the welfare state and so for redistribution • Social change and identity • a person may be associated with multiple groups • reveal multiple identities • outside changes affect role of different identities • Costa-Font and Cowell (2015a) 23 Frank Cowell: Luxembourg, March 2018
European identity? • Identifying oneself as European • explains satisfaction with value of tolerance • with democratic principles • Development of EU institutions and functions • change balance of national/European identities • effects on attitudes and their expression • What about attitudes to inequality? • use data on attitudes to redistribution • cross-checked with indicators of identity • To provide evidence of this • need observable identity markers • make clear distinction national/European 24 Frank Cowell: Luxembourg, March 2018
European Values Survey • 25 Frank Cowell: Luxembourg, March 2018
Identity: the Euro? • Some European identity markers obvious? • introduction of common currency • made the European project salient • € as an experiment • planned as a political, social experiment • but what about as a social-science experiment? • timing allows before/after views • Introduction of € in countries that joined EU after 2003: • increased confidence in the EU • reduced the importance of national pride • Change in European identity common currency: • increases preference for redistribution 26 Frank Cowell: Luxembourg, March 2018
Identity: other markers • Is the identity marker good enough? • reverse causality? • timing? • other exogenous changes? • What type of exogenous events? • changes in history curricula • citizenship education • performance in international contests (Eurovision, the Olympics) • Put in these “control markers” • some of these are strong “instruments” for national/EU identity • EU identity is major factor in understanding preferences for redistribution 27 Frank Cowell: Luxembourg, March 2018
Take-away thoughts History 1. • analysis of inequality born in Europe La Courbe de la Répartition de la Richesse ‒ a landmark • Economics 2. is Europe’s inequality profile special? • compared with US, China, Russia – yes • • an argument for Pareto as a European pioneer? Attitudes 3. • preferences for redistribution associated with European identity European identity flagged by € • • confirmed by other identity markers of nationalism 28 Frank Cowell: Luxembourg, March 2018
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